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Foreign investors have the most leg room in the oil and gas sector for further investments, and the least in cement companies.
Oil and gas companies have a market capitalisation of $159 billion, out of which $31.91 billion or 20% headroom remains for foreign investment. Other sectors with relatively higher room for foreign investment include technology, metals and mining and pharmaceuticals. They have between 10-20% headroom.
Foreign institutional investors or FIIs (now called foreign portfolio investors-FPIs) can buy additional shares worth $2.13 billion in cement companies, or 6.2% of their total $34.48 billion market capitalisation, according to data from Bank of America Merrill Lynch.
"The heavy buying by the FIIs in select sectors with earnings visibility has led to FII limits getting exhausted in many stocks over the past few quarters. Some of key sectors which have been consistently bought by FIIs are pharma, private sector banks, consumers and IT. In many of the stocks in these sectors, FIIs have exhausted the FII limits and are currently in the RBI’s restricted list for the FIIs," said the India Equity Strategy report dated 26th August and authored by Research Analysts Jyotivardhan Jaipuria and Anand Kumar.
Among stocks which recently looked to increase their FII/FPI limit are Just Dial and HDFC Bank.
There still remains plenty of headroom for absorbing flows, especially if foreign investors decide to switch out of current favourites or if there are fresh issuances, according to the analyst duo.
"Any rotation of sectors coupled with low FII room in other sectors could lead to a greater interest in these sectors. Excess flows could also be absorbed by new listing and increase in FII limits," said the report.
